Among the evidence that gives me some conviction that the inflation trade is ending is this chart. I will point out several of its features.
- The inverse measured move has been met. It’s greedy to simply expect more without another structure to support it.
- The advance from the late 2020 low to the early 2021 high is a clear 3-wave pattern ( the blue “a”).
- And from blue “b”, “c” should be an impulse, and it is, as there are 5, non-overlapping waves in that move (the orange count).
- The relationship between the length of “c” and “a” is extreme, at 2:1. This would be a terrific place for it to turn.
- The bearish divergence on the RSI is what we would expect to see between the high of a “3” and a “5.” in this case those internal to “c.” This suggests the move is more likely to end soon rather than continue.
All of these technicals support a reversion, or even at a minimum, a consolidation or pullback of some kind if not a complete trend reversal.
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